Final answer:
The journal entry for Jahn Company would involve debiting a loss on inventory write down and crediting the inventory account if its replacement cost were less than the net realizable value, according to U.S. GAAP. The lower of cost or net realizable value rule guides this decision, not the historical cost or replacement cost alone.
Step-by-step explanation:
If a student asks about the required journal entry when the historical cost of a company's ending inventory is less than the current replacement cost, we are dealing with an accounting question that pertains to inventory valuation under the U.S. Generally Accepted Accounting Principles (GAAP). Per the lower of cost or market rule (LCM), companies must write down the value of their inventory to the market value when the market value is less than the cost. However, the specific requirement for U.S. GAAP is the lower of cost or net realizable value (LCNRV), an update to the LCM made by the Financial Accounting Standards Board (FASB). Thus, GAAP does not require a write down to market value if this is above the net realizable value.
The journal entry to record a write down of inventory is to debit a loss account (often called 'Loss on Inventory Write Down' or 'Inventory Valuation Adjustment') and credit the inventory account to reflect the decrease in value. If the current replacement cost is less than the net realizable value (NRV), no write-down is required and thereby no journal entry is applied.
Here's an example of what the journal entry might look like:
- Loss on Inventory Write Down (Debit)
- Inventory (Credit)
However, it is important to remember that the example above applies only if the company's inventory market replacement cost is lower than the net realizable value, following GAAP rules. Business scenario specifics, disclosure requirements, and further analysis might be necessary to accurately determine and execute the correct accounting entry.